Gasoline prices to head for $3 a gallon after pipeline break

View full sizePaul Sakuma, Associated Press Costco customers pump gas at a Costco in Redwood City, Calif., last week. Inventories held by wholesalers surged in July by the largest amount in two years while sales rebounded after two straight declines.

Gasoline prices could hit $3 per gallon within days, after shooting up across the Midwest over the weekend.

All of the major brands in Greater Cleveland and Akron late Monday were posting prices in a range of $2.85 to $2.89 per gallon, reported GasBuddy, which relies in part on motorists to report prices.

Pump prices rose throughout the day Monday. The average price at the pumps Monday morning was $2.79 per gallon in Cleveland and $2.77 in Akron, according to the AAA, which uses data supplied from credit card sales the day before.

The problem is that a rupture shut down a major pipeline feeding crude oil from Canada to refineries in the region. Speculation that repairs could take up to 60 days has panicked wholesale gasoline markets on fears that refineries will run short of oil.

Crews on Monday were replacing a 12-foot section of a 34-inch pipeline about 30 miles southwest of Chicago. A number of federal agencies, including the U.S. Environmental Protection Agency and the National Transportation Safety Board, were investigating.

Enbridge Energy Partners of Houston reported Thursday that it had shut down the line after the loss of more than 6,100 barrels following the discovery of the break.

The line was carrying 459,000 barrels of crude oil per day from Wisconsin to Illinois and Indiana, from where regional refineries draw the oil

View full sizeCourtesy of the Oil Price Information Service
Gasoline prices have jumped by as much as 35 cents per gallon in Ohio, Indiana and Michigan since last week after a large pipeline carrying crude oil from Canada to the region burst in Illinois and had to be shut down. The line delivers nearly half a million barrels of Canadian crude to the Midwest every day. Repairs could take up to 60 days, while several federal agencies begin investigations. Prices could easily hit $3 per gallon in some areas.

Wholesale gasoline prices quickly shot up in Chicago wholesale markets, said Tom Kloza, chief oil analyst with the Oil Price Information Service, a New Jersey company that tracks wholesale and retail fuel prices across the country.

By Monday, Midwest wholesale prices were 30 cents higher than those on the East Coast and 15 to 20 cents higher than the West Coast, he said, on fears that there could be oil shortages.

Kloza said the problem was largely one of perception because the refineries have adequate stockpiles of crude to turn into gasoline -- though Midwestern refineries typically must draw into reserves to make a lot of extra diesel every fall to accommodate harvests.

By Saturday, some dealers here were facing increases of up to 18 cents a gallon, said Pat LaVecchia, owner of a Westlake filling station and director of government affairs for the Associated Food and Petroleum Dealers, representing dealers in Ohio and Michigan.

Dealers on Monday morning were paying between $2.20 and $2.30 per gallon, depending on the brand -- up from $2.10 a week earlier. Those prices are before taxes, wholesaler charges and tanker fees. With those costs included, dealers were paying more than $2.70 per gallon by Monday morning.

Paul Elhendi, who operates a Valero filling station in Lyndhurst, said that a week ago he was paying about $2.53 per gallon, taxes and fees included. And by Saturday that price had jumped to $2.70.

Elhendi, LaVecchia and other dealers fear that after their prices are sky-high, Speedway, owned and operated by Marathon Oil Co., will drop pump prices overnight, forcing the independent to follow suit. Elhendi predicted that more and more independent station owners will be driven out of business.

Speedway puts prices online from all of its individual stations. Prices were running between $2.69 and $2.85 Monday night.

Refineries in the region were already running at less than maximum output before the pipeline mishap, because of normal shutdowns for maintenance and a previous pipeline break in Michigan operated by the same pipeline company, Kloza said.

"Plenty of markets will flirt with or surpass $3 a gallon," Kloza said. "If you start with a wholesale price of, say, $2.35 a gallon (before taxes and fees), it doesn't take much to get there."

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